Mergers and Acquisitions
RCP Transactional Insurance Solutions
Risk Capital Partners provides private equity, venture capital and other investment firms pursuing mergers, acquisitions and divestitures transactional insurance solutions that are designed to mitigate deal related risks. RCP solutions eliminate the need for traditional instruments such as: escrows; equity holdbacks; letters of credit and or seller indemnities while providing real risk transfer and reduced earnings volatility.
Our team of experts has spent years structuring and successfully closing complex deals on behalf of major financial institutions and corporations. Our team is supported by relationships with the largest and most prestigious full-service law firms in the country. We are highly qualified to work with savvy deal-makers on time sensitive transactions - analyzing deal structures from a risk perspective, deconstructing the associated risks and developing innovative transactional insurance solutions that help close deals quickly. As part of your “deal-team” RCP experts will construct innovative risk mitigating solutions that will enable your transaction, cost-effectively transferring deal-related risks to the insurance markets. In some cases RCP solutions can resurrect transactions that have reached an impasse by providing deal participants with unique never before considered solutions that serve as excellent alternatives to traditional risk allocation techniques.
RCP Transactional Insurance Benefits
Greater certainty in valuation and negotiations.
Expanded list of potential targets.
Reduced tension in cases where the seller will be part of the future management team.
Reduced management distraction caused by liabilities.
Greatly reduced cost.
Immediate availability of proceeds from sale.
Transfer risk of unanticipated losses.
Enhanced negotiation position.
Elimination of obstacles to completion of sale.
Reduced time involved in finalization of deal.
Complex transactional risks can be mitigated and cost-effectively transferred. Contact RCP to discuss how we can help facilitate the successful completion of your financial transaction. Our team of experts specializes in structuring innovative transactional insurance solutions that address unusual deal-related risks.
Failed Reorganization To Preserve Basis
Summary of Law. Companies which when undergoing a restructuring of debt in bankruptcy, engage in a taxable transfer of all or substantially all of its assets to a newly formed entity with a desired capital structure. Such transfer, made to avoid an unnecessary step-down in tax basis due to the cancellation of debt, may be open to attack under various sections of the Code.
Relevant Tax Codes:
IRC Section 351 - Tax-Free Exchange - It generally will be necessary that the transfer of assets and distribution to creditors not qualify as a tax-free exchange. Sufficient stock must be transferred to creditors or sold to third parties to both break "control immediately after" (Section 368(c)) and to fail the 80% vote-and-value test (Section 1504(a)(2)).
IRC Section 368(a)(1) - Tax-Free Reorganization - To qualify as a "G" Reorganization, a corporation must (i) transfer all or part of its assets to another corporation in a bankruptcy or similar case and (ii) pursuant to the plan of reorganization, distribute the stock and securities received in the acquiring corporation to its creditors and/or shareholders in a transaction which qualifies under Sections 354 or 355. Furthermore, the non-statutory requirements of "continuity-of-interest", "continuity of business enterprise" and "business purpose" must be satisfied.
IRC Section 269 - Tax Avoidance Provisions - Some of the structures used to avoid a tax-free reorganization may raise the issue of tax avoidance under Section 269. The IRS may disallow deduction, credits or other tax benefits (including tax basis) where there is (i) a proscribed acquisition and (ii) "the principal purpose" of such acquisition is the avoidance of tax by securing the benefit of such deductions, credits or other tax benefits.
Potential insured tax benefit: The risk of the newly formed corporation having a reduced amount of tax benefits. Also, cases where a taxable transfer of assets is used to create a current loss to offset current income or carried back for a refund of prior year's taxes.
Advantages of Tax Insurance: In these situations, insurance can be used when the time and ability to obtain an advance ruling from the Internal Revenue Service is not feasible. Moreover, the IRS does not have a standard practice of giving rulings in this area.